Research & Trends: Overcoming Beverage Growth Challenges

We live – and work – during a challenging time. As David Henkes of fact-based consulting and research firm Technomic explained during his 2016 Nightclub & Bar Show presentation, the food & beverage space is experiencing some interesting changes. Jobs, wages, consumer confidence, personal disposable income, and alcohol sales are on the rise, and unemployment, underemployment, gas prices and foreclosures are down, which is all great news. But while both consumers and operators are doing better, F&B sales are up 6.2%, volume growth is challenged. Spirits grew only 1.3% and wine grew a mere 0.5%, while beer declined -0.2% in 2015. The big domestic beer brands are, Henkes put succinctly, not doing well. Again, while several important economic factors are on the upswing, Technomic has found that calls for alcohol are declining and pre-recession consumers just aren’t returning to bars like they are to restaurants.

Two other challenges that operators are facing are Millennials (age 24 to 39) and Gen Z (age 23 and under). Millennials account for more than 68 million Americans, so operators can’t afford to ignore this multifaceted and diverse demographic. They’re the driving force shaping the adult beverage market and they are a demanding group. They’re the best educated and best traveled generation, they’re multifaceted and savvy, and they have sophisticated palates. Gen Z makes up 16% of the population and are possibly even more diverse than the Millennials. They’ve digital natives, having grown up with cutting edge tech and social media. The Millennials are shaping adult beverage but Gen Z is on the cusp of taking this market in entirely new directions. Operators must be savvy themselves to capture and hold the attention and loyalty of these two generations.

Luckily, Henkes shared solid information that can help target both Millennials and Gen Z. The two generations are experimental and like sweet wines and flavored spirits. They also both enjoy savory, spicy, bitter, citrus and herbal flavors, along with flavor combinations. As most operators have likely learned by now, these generations engage with all categories of beer, wine and spirits. Millennials and Gen Z demand authenticity while craving innovation, and because they believe themselves to be knowledgeable they prioritize quality. Cost of drink, however, is most important factor in Millennial and Gen Z drink selection. In general, 44% of consumers say that cost is the number one factor in drink selection, but 59% of Millennials and 52% of Genz say that cost outweighs other influences.

With challenge comes opportunity, and the F&B space is loaded with the chance for operators to excel. Because 40% of consumers agree or even strongly agree that alcohol beverages play an important role and because Millennials and Gen Z consumers say that drink offerings are particularly important to them, a fully realized beverage program that takes advantage of current trends while remaining relatable can draw in guests. Whiskey’s momentum will continue and as long as operators stay on top of category trends, they’ll benefit from its popularity. American straight whiskey, Irish whiskey and single malt Scotch are the current leaders, and whiskey sales are strong: they more than doubled in growth from 2014 to 2015. Blended whiskies may be declining but as Technomic found, they’re incredible volume drivers. While it seemed last year that vodka was being shunned by consumers in favor of the whiskey trend, the spirit’s decline is starting to slow and the category is stabilizing. As long as operators stick with domestic small batch and premium brands, they should succeed with vodka since flavored and imported vodkas are taking the brunt of the category’s downward trend. Keep in mind also that the fastest growing cocktails are vodka based, despite the spirit’s decline. The Moscow Mule in particular is the top performing cocktail, growing 67% in hotels and 119% for menu mentions.

When it comes to beer, craft and imported beers have strengthened their position at the bar. Mexican beer is getting more tap handles and seasonal craft beers are definitely engaging consumers. As Henkes said, “It's all about craft." He expects domestics to shrink more craft gains market share. However, be careful not to neglect domestic beers because while it isn't growing, the category is still huge in the market. In fact, domestic 51% of consumers overall still enjoy domestic light beer, and 70% of Millennials and 53% of Gen Z consume it. As far as the new trend of hard sodas is concerned, Henkes questions whether or not it’s a fad or phenomenon, so proceed with caution.

Two other categories that must receive attention from operators wishing to succeed in today’s challenging space? Wine and mixers. One-third of consumers drink Merlot, Chardonnay, Pinot Noir, White Zinfandel, Cabernet Sauvignon, Pinot Grigio and Moscato. If that list seems rather long, the list of varietals climbing in popularity is even longer: Bordeaux, Barolo, Brunello, Sangiovese, Barbera, Amarone, Meritage and other blends, Chablis, Albariño, Sauvignon Blanc, Pouilly-Fuisse and Riesling. Curate your wine list carefully, and be just as careful when selecting juices, soft drinks, mixes, energy drinks, purees, and syrups. Technomic found that 41% of bartenders agree that consumers are more interested today in mixers, and that they want (and expect) GMO-free, all natural, house-made, fresh mixers free of artificial ingredients. The good news is that because they influence the taste and quality of cocktails, consumers will pay more for drinks if they’re built with high-quality mixers.

"Don't over-invest in your spirits program,” said Henkes, “if you're not also investing in your mixers."